Citizens Securities, Inc., a brokerage firm headquartered in Dedham, Massachusetts, was censured and fined $50,000.00 by Financial Industry Regulatory Authority (FINRA) based upon consenting to findings that the firm overcharged charitable entities and retirement plan customers in reference to mutual fund transactions. Letter of Acceptance, Waiver and Consent, No. 2016049977401 (Mar. 31, 2017).
According to the AWC, several share classes of mutual funds had been sold by Citizens Securities, Inc., in which the share classes contained different sales charges and structures even though they were comprised of interests in the same securities portfolios. Apparently, the expenses and fees of each share class and sales charge waiver availability had been contained within the mutual funds’ prospectuses.
The AWC detailed that class A shares offered through the firm contained front-end loads which contained waivers when sold to charitable entities and retirement plan customers. However, the waivers were not applied by the firm to the purchases made by the customers who were eligible for them. Instead, customers were either sold class B or class C shares containing higher expenses and fees, or incurred front-end sales charges in connection with class A shares.
Apparently, from January 1, 2011 to November 1, 2016, Citizens Securities, Inc. did not provide adequate supervision concerning the applicability of waivers pertaining to sales charges on certain mutual transactions for customers who were eligible. Instead, financial advisors were tasked by the firm with making determinations concerning the waiver applicability. Citizens Securities, Inc. reportedly failed to implement procedures and policies designed to aid the advisors in concluding whether the waivers were applicable for certain customers. Apparently, procedures had not been created and implemented by the firm to detect waiver applicability through the funds’ prospectuses.
The AWC further stated that financial advisors had not been given reasonable notice or training pertaining to the sales charge waivers. Further, the firm failed to maintain procedures for determining circumstances when eligible customers did not receive the waivers upon effecting mutual fund transactions.
According to the AWC, Citizens Securities reported to FINRA that approximately two-hundred and seventy-seven customer accounts contained mutual funds purchases where no waiver of sales charges had been applied. Evidently, customers overpaid $59,627.00 since January 1, 2011, in connection with the purchases of mutual funds where sales charges waivers should have been applied but were not. FINRA found that the firm’s supervisory failures in this regard constituted violations of FINRA Rule 2010, 3110, and NASD Conduct Rule 3010.
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